Central Bank Watch – Fed, ECB, RBA, Norges, Bank Negara and Brazil’s Policy Decisions

The week ended with another US Regional bank collapsing, the time The San Francisco-based First Republic Bank. Elsewhere, BoJ Governor Ueda’s first BoJ meeting saw no changes to its ultra-loose policy, but it replaced a pledge to keep rates at or below current levels with guidance for continued yield curve control (YCC) with an aim of achieving the price stability target.  Sweden’s Riksbank delivered another 50bps hike. In our central bank watch in the week ahead a lot to take in. The Fed, ECB, RBA, Norges Bank, Bank Negara and Brazil’s central bank round out an active week for central bank policy decisions. we have U.S. regional bank problems to survey and for data we have Nonfarm payrolls for the month of April, China PMIs and more earnings.

Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.

Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.

To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.

In the Week Ahead

This week we end the blackout period for Fed Speakers ahead of the FOMC on May 3rd. We also have the ECB, RBA, Norges Bank, Bank Negara and Brazil’s central bank policy decisions. The following week the Bank of England on May 11th.

All eyes on the Federal Open Market Committee which meets on Tuesday and Wednesday and the outcome culminates in a 2pmET statement-only affair on Wednesday (no forecasts or dots and to be followed by Chair Powell’s press conference 30 minutes later. ) Consensus is for another 25bps hike that would take the upper limit of the Fed funds target range to a new high of 5.25%. With the FRC collapse uncertainty abounds over what the statement does on bias.

Central Bank Highlights This Past Week:

Most of the G10 central banks may complete their rate hike cycles around the middle of the year or earlier, the unwinding of central bank balance sheets may continue longer, depending on the damage done.

This week’s central bank main events included:

  • The Bank of Japan as widely expected kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield unanimously.
  • Sweden’s central bank the Riksbank delivered the expected 50bps hike and revised up its explicit forward rate path to indicate a downshifted 25bps extra hike by either June or September to a terminal rate of 3.75%. Thereafter the Riksbank forecasts that the policy rate will remain elevated for an extended period of time versus OIS pricing for rate cuts over the forecast horizon and specifically over the later part of 2024 into 2025).
  • The Board of Colombia’s Central Bank (BanRep) hiked by 25bps policy rate to 13.25%, in a non-unanimous but hawkish split vote decision. Two members voted to keep the rate at 13%, four voted to increase 25bps to 13.25%, and one board member voted to increase by 50bps policy rate.
  • European Central Bank policymaker Wunsch said that a terminal rate of 4.0% could easily be reached while policymaker Stournaras said that rates are close to their peak.
  • European Central Bank Chief Economist Lane said that a rate hike in May will be warranted and that additional rate hikes will be data dependent.
  • Policymaker Villeroy de Galhau said that “a few more” rate hikes might be needed.
  • The Bank of England said in a statement that it is in discussions with the Bank of Japan, European Central Bank, Swiss National Bank, and the Fed to revert the frequency of daily operations to once per week.

Eyes on the Bond Market

U.S. Treasuries closed out April with solid gains across the curve. Gains came about after the Bank of Japan’s first policy statement under Kazuo Ueda. The BoJ made no changes to its ultra-loose policy, but it replaced a pledge to keep rates at or below current levels with guidance for continued yield curve control (YCC) with an aim of achieving the price stability target. Treasuries gained also after the March Personal Income/Outlays report showed a deceleration in the yr/yr PCE Price Index to 4.2% yr/yr from 5.1% in February while the core reading ticked down to 4.6% from 4.7%. This week’s action compressed the 2s10s spread by two basis points to -61 bps. The 2s10s spread narrowed by four basis points in April.

Yield Watch


  • 2-yr: -3 bps to 4.06% (-10 bps for the week; UNCH in April)
  • 3-yr: -4 bps to 3.78% (-12 bps for the week; -5 bps in April)
  • 5-yr: -7 bps to 3.54% (-12 bps for the week; -7 bps in April)
  • 10-yr: -8 bps to 3.45% (-12 bps for the week; -4 bps in April)
  • 30-yr: -8 bps to 3.68% (-10 bps for the week; -1 bp in April)

Highlights – Federal Reserve

  • Federal Reserve Credit declined $32.4bn last week to $8.539 TN.
  • Fed Credit was down $362bn from the June 22nd peak.
  • Over the past 189 weeks, Fed Credit expanded $4.812 TN, or 129%.
  • Fed Credit inflated $5.760 Trillion, or 205%, over the past 546 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt jumped $33.1bn last week to $3.371 TN.
  • “Custody holdings” were down $91bn, or 2.6%, y-o-y.

Fed 2023 Bank Stress Tests.

Update: This got more interesting with the three bank failures in a week. Silicon Valley Bank (SVB) was the largest failure since Washington Mutual’s September 2008 collapse. It was also the second largest in U.S. history.

SVB is the dominant financier for Silicon Valley startups. SVB ended 2022 with a $120 billion securities portfolio, the vast majority mortgage securities (MBS and CMOs). SVB’s spectacular collapse will have a major negative impact on its $74 billion loan portfolio.

Silvergate Capital Corp. plans to wind down operations and liquidate its bank after the crypto industry’s meltdown. Silvergate collapsed amid scrutiny from regulators and a criminal investigation by the Justice Department’s fraud unit into dealings with fallen crypto giants FTX and Alameda Research. Silvergate’s woes deepened as the bank sold off assets at a loss and shut its flagship payments network, which it called “the heart” of its group of services for crypto clients.

The Federal Reserve last month released the hypothetical scenarios for its annual bank stress tests. This year, 23 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets. Last year the Fed found all 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks.

Central Bank Week Ahead:

This Week’s Interest Rate Announcements (Time E.T.)

In the week ahead we get six central banks delivering policy decisions.

Tuesday, May 2, 2023

  • 00:30 RBA Interest Rate Decision & Statement

Wednesday, May 3, 2023

  • 03:00 Malaysia Interest Rate Decision
  • 14:00 Federal Open Market Committee (FOMC) (second day: statement released)
  • 17:00 Brazil Interest Rate Decision

Thursday, May 4, 2023

  • 04:00 Norges Bank Interest Rate Decision
  • 08:15 ECB Monetary Policy Statement & Interest Rate Decision

This Week’s Central Bank Speeches, Meetings (Time E.T.)

Monday, May 1, 2023

  • Labor Day in much of the world

Tuesday, May 2, 2023

  • 00:30 RBA Interest Rate Decision & Statement
  • 07:05 ECB’s Enria Speaks
  • 07:20 RBA Governor Lowe Speaks
  • 19:00 RBNZ Gov Orr Speaks
  • 21:30 RBA Chart Pack Release

Wednesday, May 3, 2023

  • 03:00 Malaysia Interest Rate Decision
  • 00:55 RBA Assist Gov Ellis Speaks
  • 05:00 German Buba Wuermeling Speaks
  • 06:35 German Buba Balz Speaks
  • Tentative GBP BoE Quarterly Bulletin
  • 08:00 EUR ECB McCaul Speaks
  • 11:00 German Buba Wuermeling Speaks
  • 11:20 ECB’s Supervisory Board Member Jochnick Speaks
  • 14:00 Federal Open Market Committee (FOMC) (second day: statement released)
  • 14:30 FOMC news conference
  • 17:00 Brazil Interest Rate Decision
  • 17:00 RBNZ Financial Stability Report
  • 19:00 RBNZ Gov Orr Speaks

Thursday, May 4, 2023

  • 04:00 Norges Bank Interest Rate Decision
  • 08:15 ECB Monetary Policy Statement & Interest Rate Decision
  • 08:45 ECB Press Conference
  • 10:15 ECB President Lagarde Speaks
  • 12:50 BoC Gov Macklem Speaks
  • 16:30 Fed’s Balance Sheet, Balances with Federal Reserve Banks
  • 21:30 RBA Monetary Policy Statement

Friday, May 5, 2023

  • 04:00 ECB’s Elderson Speaks
  • 05:00 SNB Chairman Thomas Jordan speaks
  • 13:00 Federal Reserve Board Governor Lisa Cook gives commencement address before the 2023 Spring Convocation of Michigan State University, 1300 EDT/1700 GMT. Text available. No Q&A. Livestream at https://commencement.msu.edu/.
  • 13:00 Federal Reserve Bank of St. Louis President James Bullard participates in fireside chat on the U.S. economy and monetary policy before an Economic Club of Minnesota luncheon, 1200 CDT/1300 EDT/1700 GMT. In-person event with virtual option.

Federal Reserve FOMC Schedule 2023

The Fed with a Strong US Dollar

The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.

The survey of 40 economists was conducted Oct. 21-26.

  • 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses.
  • 38% said the policy makers would be forced to cut rates earlier than expected and
  • 18% said the Fed would not be able to raise rates as much as planned.
  • Survey respondents expect rates to peak at 5% early next year and a majority of the economists now expect a US and global recession.

The Fed as expected raised another 50 basis-points last meeting. The median estimate for the terminal rate in 2023 had been raised to 5.10% versus the September projection of 4.60%. The value of the dollar is an important component to lowering inflation. A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export prices.

“Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically.”

Anna Wong (Bloomberg chief US economist)

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